Even though competition and other market forces may be to blame for some of these business closures, many small companies fail due to thefts, property damage, and injuries. For this reason, every new business should invest in small-business insurance.
What is Small Business Insurance?
Entrepreneurs can use small business insurance to protect their assets, themselves, and their businesses. Small business owner policies include three main categories of coverage:
- General Liability Insurance
- Coverage for business property
- Business interruption insurance
Depending on your industry or niche, you may require additional protection. A daycare center, for example, may be exposed to more liability risk than a retail eCommerce merchant operating from their home. These differences would be reflected in the commercial insurance policies of either the daycare center or eCommerce merchant.
Why is insurance for small businesses important?
While selling products or services, several potential risks may arise, from injury to litigation. While some may consider these incidents isolated, 36-53% of small businesses face some litigation yearly.
Small business insurance won’t stop these events from occurring, but it will help you avoid the worst of their consequences:
- Insurance can help you rebuild your business in the event of a fire.
- Insurance can cover legal costs and settlements if you are sued.
Some types of insurance for small businesses are required at the state, local or federal level. You may have to add workers’ compensation and unemployment insurance to your policy when you hire a new employee.
What types of insurance are available for small businesses?
There are many types of BOPs available to small business owners.
Business interruption insurance
Would your business survive if your storefront was suddenly destroyed by fire or if your warehouse was flooded? You could keep your business afloat if you had the right insurance. Some policies will compensate you so you can pay your employees a certain percentage of their salary until you are back on track.
If you have interruption coverage, you may be better prepared to deal with a disaster, whether a hurricane, wildfire, or pandemic.
Key Person Insurance
Critical person insurance is very similar to business interruption insurance. The key difference is that business interruption insurance covers the loss of “key” members in an organization, such as a co-founder or owner. It can be hard to continue a business when an owner passes away or gets sick. This type of insurance will pay out to the remaining owners and beneficiaries. They can then use the money to phase out the business or to hire and train someone to replace the key employee.
Workers Compensation Insurance
Workers’ compensation is a state-mandated program covering illnesses and injuries from work. Workers’ compensation, for example, would cover an employee who slips and breaks their leg at work.
- Medical bills of the employee
- Employees can receive a portion of their salary
- Legal fees for an employee who files a lawsuit
Workers’ compensation is distinct from disability insurance or unemployment insurance.
- Employees who have disability insurance receive compensation if they are injured or ill and it is unrelated to their work. For example, some new mothers use their disability insurance while on maternity leave.
- Employers contribute to unemployment taxes at the state and federal levels to ensure employees receive financial aid in the event of a job loss.
General Liability Insurance
Insurance against general liability covers any potential property damage or injuries that customers may suffer due to your products and services. A landscaper, for example, could accidentally damage a sprinkler while mowing a customer’s lawn. Insurance for general liability would cover legal fees, repair costs, and possible settlements.
It’s a good idea to purchase product liability coverage if you sell physical products. It protects you against potential legal actions throughout your product’s life cycle. 3
Insurance for business property
This type of insurance, also known as commercial property, is for small business owners that manage physical locations such as offices, shops, warehouses, and equipment yards.
Business property insurance can help you protect your inventory, space, and equipment from loss or damage. Most policies include coverage for fires, floods, and weather events. Read the fine print to ensure that damage caused by “Acts of God,” such as flooding, is covered.
Cyber Liability Insurance
Many small business insurance guides now include a relatively new cyber liability protection policy. This is because data breaches and cyberattacks are still happening. This insurance helps businesses recover after a cyberattack or data breach. Cyber liability insurance, for instance, can provide you with financial resources to:
- Restore electronic data
- Notify your customers and vendors.
- Hire professionals (attorneys, forensic accountants, and public relations experts).
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